|
 Acacia,
Eolas and Other IP Landmarks
U.S. Patent Law Is Under Review, Spurred Largely by Recent Trends
in Digital Media
by Skip Pizzi
They may sound like lovable characters from "The Lord of the
Rings," but to those in the intellectual property business,
Acacia and Eolas represent two nasty cases that are giving fits
to the world of patent law.
The IP actions of these two companies both involve digital media,
but they are among several landmarks in a process that is likely
to create fundamental changes in the workings of the entire U.S.
patent process in general.
This may seem an arcane discussion to broadcasters. Yet it has
critical impact on anyone involved in media technology, because
the workings of IP law have profound effect on innovation. If companies
cannot collect a fair return on their investment in technological
development, or their legal burdens become onerous, they will be
less likely to perform such work, and the industry as a whole -
not to mention consumers - will suffer.
The Acacia case
Acacia represents a type of patent abuse that could become rampant,
due to two primary factors.
The first involves the quality of patents granted to software developers
by the U.S. Patent and Trademark Office. The PTO only began issuing
software patents in the 1980s, so the level of experience among
examiners in this area remains somewhat shallow and the database
of prior art is relatively small. This means the PTO has granted
numerous software patents that it probably shouldn't have.
In fairness, it would have been hard to envision some of the changes
that the Internet and digital media boom have subsequently brought
about, and concepts that seem obvious now may not have been so when
first filed. In any case, there are companies holding quite broad
or vaguely defined patents filed during these earlier years that
would never be granted today.
The second basis of the Acacia case stems from the attitude of
the so-called "IP terrorist." This refers to a company
that holds patents but has no intention of developing products using
them. Instead, the IP terrorist simply notifies other companies
that it believes are infringing on its patent(s), and seeks licensing
deals with them.
The clever IP terrorist seeks out target companies that have built
their entire businesses around a technology in which the terrorist
holds patents, so that in order to stay in business, the target
company has to pay attention to the terrorist's demands. The terrorist
also seeks out companies that are technology "users" and
not "developers," so there is little likelihood that the
target can come up with viable, non-infringing alternatives. (In
some cases, the patents are so overly broad that no such alternative
could exist.)
Other criteria for target selection used by IP terrorists include
companies that are excessively risk-averse or otherwise unlikely
to challenge the terrorists in court due to shortage of funds, concerns
over potential negative publicity, fear of scaring off other deals
in play or other reasons.
Careful target selection is critical to the IP terrorist's strategy,
because an overly broad patent may stand a good chance of subsequently
being invalidated by a court. But this could only occur if a targeted
company challenged or countersued the terrorist and the case went
to trial, a process that could cost millions of dollars and take
years.
The specifics of the Acacia case are a classic example of this
process. The company was granted a patent for which it had applied
many years earlier. Its claims cover the broad area of providing
media content on demand over a digital network, so the company now
feels that all Internet streaming media infringes its IP.
Acacia first targeted what it considered easy marks in the Internet
adult content industry. These companies have built their businesses
almost entirely on streaming media, and have become quite profitable
at it. They were also unlikely to challenge an infringement claim
because they would not be considered sympathetic plaintiffs in most
courts, and generally preferred to stay below the radar in the legal
environment. Acacia therefore was able quickly to collect licensing
revenues on a per-user basis from the dozens of companies that it
sued in this sector.
Interesting, Acacia also targeted another, different set of users
in the online education and training field, including some university
extension programs. These operators also relied heavily on streaming
media for their revenue, but they would have a far more positive
reaction in the courts than the adult content industry were they
to challenge Acacia. So Acacia's strategy was a bit different, contacting
the operators with simple business correspondence rather than slapping
them with an infringement suit.
n this case, the targets were generally averse to litigation based
purely on its cost, so many agreed to pay royalties to Acacia as
a straight business deal, without official legal action taken by
either party. Naturally, this raised the net benefit to Acacia,
which incurred minimal legal expenses in these actions.
Buoyed by these successes, Acacia raised its sights to bigger game,
targeting major players in the mainstream online entertainment field
such as Virgin Music and Universal Music Group. Here again, Acacia
has realized some victories, with Virgin reportedly settling with
Acacia on a 2 percent royalty. To date, Acacia apparently has secured
around 50 licensing deals, and continues to pursue its actions in
the streaming media content industry.
The Eolas case
Eolas is another company that has filed infringement suits over
online technology, in this case claiming broad rights over any feature
on a Web site that launches an embedded application.
Unlike Acacia's approach of nibbling away at small online content
providers, Eolas has gone straight for the jugular, and filed infringement
suits against browser companies such as Microsoft (for whom this
columnist works). Eolas succeeded in its case, and Microsoft was
ordered to pay Eolas, essentially a one-man shop, $520 million.
Microsoft appealed, but somewhat surprisingly, the World Wide Web
Consortium - W3C, the standards body for Web content specifications
- petitioned the PTO for re-examination of the Eolas patent. Even
more surprisingly, the PTO agreed to do so, and that re-examination
is now underway.
Such revisionist action by the PTO is not unheard of. In fact,
an oft-cited precedent dates back to 1895, when the PTO awarded
George Selden a patent for attaching the newly developed internal
combustion engine to a chassis. Selden exercised the patent to collect
royalties from all the early automobile manufacturers until Henry
Ford and other implementers petitioned the PTO for relief, citing
the "obviousness" of Selden's patent and its cost burden
on purchasers of cars. In 1911, the PTO substantially narrowed the
scope of Selden's patent, resulting in greatly reduced royalties
paid by manufacturers, and thus, less expensive cars.
The battles now brewing in the software patent world indeed loom
Tolkienesque, and the road goes ever onward. More on this epic saga
and its possible resolutions next time.
Skip Pizzi is contributing editor of Radio World.
|
